Journal of Economic Perspectives
metropolitan areas with
population of more than
million rose from 41 percentin 1970 to 48.1 percent in 1990. (In general, most of the facts in this paper will stopat 1990, primarily because reliable urban population numbers are only availableduring census years.) Moreover, there is little general correlation between city sizeand the expected growth of cities or metropolitan areas either in the United Statesor elsewhere (Glaeser et al., 1995; Eaton and Eckstein, 1995; Dobkins and Ioanni-des, 1996), which suggests that there is no inexorable trend towards the decline ofbigger cities. Workers who live in metropolitan areas surrounding a city with morethan 500,000 workers earn 10 percent more than workers in metropolitan areaswithout big cities, and 34 percent more than workers outside metropolitan areasaltogether (Glaeser and Mare, 1994) 'About 96 percent of new product innovationsoccur in metropolitan areas, and 45 percent of these new innovations occur in fourmetropolitan areas: New York, Los Angeles, Boston and San Francisco (Feldmannand Audretsch, 1996). Twenty-five percent of the winners of the national KennedyCenter lifetime achievement awards for contribution to American culture went topeople born in New York City.3Actually predicting the future of the city requires a framework for understand-ing the costs and benefits of urban life. The end of the city is only likely if we believethat either the benefits of urbanization are disappearing (as the techno-prophetsargue) or that the costs of city life are rising astronomically (as the analysts of theinner city sometimes suggest). This paper will summarize what we know about ag-glomeration economies and congesting forces in order to assess how changes inthese forces will affect the demand for cities.Conceptually, a city is just a dense agglomeration of people and firms.
ofthe benefits of cities come ultimately from reduced transport costs for goods, peopleand ideas. The positive impact of agglomeration that comes from reducing the costsof moving goods lost most of its importance over the 20th century as transportationcosts fell and large-scale manufacturing declined. The costs of moving people andideas, however, appear to be as important as ever. The future of the city's produc-tivity depends on whether available substitutes for face-to-face interactions (e-mail,the internet, and so on) will make the need for personal contact obsolete, orwhether the new technologies harbor the dawn of a more interactive era where theability to contact in person easily is particularly prized.The costs of cities have historically included health costs, pollution, congestion,crime and social problems. Technological advances have eliminated the health andpollution gaps between cities and other areas. However, longer commuting timesin cities are still an important cost, and social troubles such as crime remain among
'While actually measuring price differences on a micro-level is quite hard, it appears that this wage difference roughly compensates workers for higher prices. Nevertheless, as
discuss later, it also must reflect a higher productivity of labor since otherwise, firms would leave. "chard Freenian alerted me to this fact and gave me the raw data on which he calculated this figure.